Chinese banks' retail business is in the early stage of recovery, and J.P. Morgan is more bullish on China Merchants Bank

Overview

This report focuses on the retail businesses of Chinese banks. J.P. Morgan believes the industry's retail segment is showing early signs of recovery: even though loan demand remains weak, profitability has stabilized. Retail pre-tax ROA in 2025 was about 1.3%, and the premium over corporate banking widened, marking the first improvement signal since 2021. The report clearly prefers China Merchants Bank, viewing it as the most certain beneficiary in the first phase of the retail recovery.

Core views

The key view is that the improvement in retail banking profitability is not being driven by a rapid rebound in loan demand, but mainly by three factors: lower credit costs, a recovery in wealth-related fee income, and the end of the drag from mortgage repricing of the existing book. Thanks to its leading wealth management capabilities, 2.5% retail pre-tax ROA and more balanced retail loan mix, China Merchants Bank is the main winner in the current recovery phase. By contrast, PSBC, Minsheng Bank and Ping An Bank depend more on a stronger cyclical recovery, especially in personal business-loan demand and asset quality.

Analysis framework

The report compares Chinese banks' retail businesses with corporate banking on pre-tax ROA, loan yields, risk-adjusted returns, credit costs, fee income and loan mix to judge the quality of retail profitability and the sources of the recovery. It also compares banks' retail loan growth, mortgages, credit cards, consumer loans, personal business loans and wealth-business contribution to screen for the banks most likely to benefit.

Methodology notes

• Profitability analysisPre-tax ROA comparison

  Gap between retail pre-tax ROA and corporate pre-tax ROA

  Retail pre-tax ROA is used to measure the profitability quality of retail banking and to compare it with corporate banking. In 2025, retail pre-tax ROA was about 1.3%, and the advantage over corporate banking widened to 42 bps.

• Asset quality analysisCredit costs and NPL formation

  Lower credit costs

  The report views the decline in retail credit costs from 113 bps to 100 bps as an important driver of profitability stabilization, and believes this may reflect a lower retail NPL formation rate.

• Revenue mix analysisFee income and wealth business contribution

  Wealth business drives fee income recovery

  Retail fee income grew 7% y/y in 2025, reversing the 6% y/y decline in 2024. The migration of deposits into wealth and insurance products in a low-rate environment supported fee growth.

• Loan demand analysisSegmented retail loan growth

  Divergence in mortgages, personal business loans and consumer loans

  The report believes retail loan demand will remain weak in the near term; as of February 2026 retail loan growth slowed to 0.2%, mortgages and consumer loans remain under pressure, and personal business loans may continue to decelerate.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Merchants Bank / 600036.SS / 3968.HK

  core beneficiary

  Strengths

  Retail pre-tax ROA was 2.5%, the highest in the sector; retail contribution is high, wealth business leads, and retail loan growth is more balanced.

  Weaknesses

  Still affected by the sector-wide weak retail loan demand and the low-rate environment.

  Comparison

  Compared with peers, China Merchants Bank has a clear advantage in retail profitability, wealth business and loan mix.

  Risks

  If wealth business growth slows, credit costs rise again, or mortgage and consumer-credit demand deteriorate further, the upside from retail recovery could be lower than expected.

• Postal Savings Bank of China / 1658.HK

  cyclical recovery leverage name

  Strengths

  If personal business-loan demand and related asset quality improve materially, it could see meaningful upside.

  Weaknesses

  The report notes that its retail credit costs rose significantly, and a strong recovery is not the base case for 2026.

  Comparison

  Compared with China Merchants Bank, its upside depends more on cyclical loan-demand recovery rather than wealth-driven first-stage recovery.

  Risks

  Personal business loans and retail asset quality may recover less than expected.

• China Minsheng Banking / 1988.HK

  cyclical recovery leverage name

  Strengths

  Its 2025 retail NIM proxy improved, making it one of the few banks showing improvement among peers.

  Weaknesses

  Retail credit costs rose significantly, and visibility on recovery is lower than for China Merchants Bank.

  Comparison

  Compared with China Merchants Bank, Minsheng Bank needs a stronger macro and retail credit cycle to support it.

  Risks

  Rising credit costs, retail asset-quality pressure, and insufficient loan demand.

• Ping An Bank / 000001.SZ

  cyclical recovery leverage name

  Strengths

  Retail credit costs improved significantly, falling 47 bps in 2025; if personal business-loan demand and asset quality improve, there is upside.

  Weaknesses

  It is not the preferred name in the report's base case, and demand recovery remains unclear.

  Comparison

  China Merchants Bank benefits more from a certainty-driven recovery led by wealth business, while Ping An Bank depends more on cyclical improvement.

  Risks

  Weak consumer-loan and personal business-loan demand, plus insufficient asset-quality recovery.

• Chinese bank sector

  industry allocation backdrop

  Strengths

  Retail profitability has stabilized, fee income has recovered, and the drag from mortgage repricing has essentially ended.

  Weaknesses

  Retail loan demand remains weak, mortgages and consumer loans are under pressure, and personal business loans may continue to slow.

  Comparison

  The pre-tax ROA advantage of retail banking over corporate banking has widened, but risk-adjusted loan returns are broadly similar to corporate banking.

  Risks

  Further rate cuts, weak property sales, a rebound in retail NPL formation, and slower fee-income growth.

Key data

• 2025 retail pre-tax ROAabout 1.3%Retail profitability stabilized, and the advantage over corporate banking widened.
• Retail pre-tax ROA advantage over corporate banking42 bpsIt was 31 bps in 2024.
• Retail credit costs100 bps in 2025It was 113 bps in 2024, down 13 bps.
• Retail fee income growth+7% y/yIt was -6% in 2024, driven mainly by wealth-related businesses.
• Retail loan yield decline-68 bps y/yThis was mainly caused by repricing of the existing mortgage book, equivalent to about a 40 bp cut in mortgage rates.
• Retail loan growth in Feb 20260.2% y/yThis shows retail loan demand has not yet clearly recovered.
• 2025 mortgage loan growth-1.8% y/yAs of December 2025, the report expects a low-single-digit contraction to persist in 2026.
• China Merchants Bank retail pre-tax ROA2.5%The highest in the peer group, and 136 bps above its corporate banking business.
• China Merchants Bank retail contributionloans 50%, revenue 58%Above the peer average of 37% for loans and 46% for revenue.
• China Merchants Bank 2025 retail loan growth2.1% y/yAbove the industry's roughly 0.5% growth rate, with a more balanced mix.

Impact & implications

The investment implication is that the first stage of the recovery in Chinese banks' retail business is more structural than a broad cyclical rebound. The market should prioritize banks with strong wealth-management capabilities, high retail ROA, a balanced loan mix and improving credit costs. China Merchants Bank stands out most clearly on these dimensions, which is why the report is more positive on it; by contrast, any stronger upside case for PSBC, Minsheng Bank and Ping An Bank would require a stronger macro and credit-cycle recovery.

Risks

• Retail loan demand is unlikely to improve meaningfully in the near term; retail loan growth was only 0.2% in February 2026.
• Mortgage loans may still contract in the low single digits, and weak primary and secondary property sales will continue to weigh on mortgage demand.
• Consumer-loan stimulus has had a limited effect; as of February 2026, consumer loans were still down 1.5% y/y.
• If policy rates are cut further, retail loan yields and bank net interest margins could come under pressure again.
• Retail NPL ratios are still rising; if NPL formation picks up again, the downtrend in credit costs could reverse.
• If sales of wealth and insurance products slow, the recovery in retail fee income may fall short of expectations.
• The upside for PSBC, Minsheng Bank and Ping An Bank depends on a stronger cyclical recovery, which has limited visibility in the base case.

What to watch

• Whether retail loan growth recovers from around 0.2%, especially in mortgages, personal business loans and consumer loans.
• Whether retail credit costs continue to decline and whether retail NPL formation keeps improving.
• Whether retail fee income and wealth-management business growth remain strong.
• The persistence of deposit migration into wealth and insurance products.
• After the repricing of the existing mortgage book is completed, whether retail loan yields stabilize.
• The impact of primary and secondary property sales data on mortgage loan demand.
• Whether China Merchants Bank's retail pre-tax ROA and retail profitability resilience continue to lead peers.